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The Importance of Worked Examples in Contracts

on Tuesday, 10 November 2020.

The objective of a contract is to create certainty and a way forward for the parties to act. Sometimes, things can get complex and can be hard to describe.

The case of Altera Voyageur Production Ltd v Premier Oil E&P UK Ltd shows the value of having worked examples.

The Agreement

The parties had an agreement for chartering a boat, with a complex formula for payment depending on when the boat was available. The appendix to the contract contained two worked examples, which actually had two further steps than were in the formula. The parties agreed that one of the extra steps was intended by the parties, but they disputed whether the second one was intended.

One party argued that the worked examples should be used, whereas the other said this would produce an inconsistent result with other terms in the agreement. That other also said the court should imply a term providing that the formula took precedence over the worked examples in the appendix.

What Did the Court Decide?

The High Court said that the examples in the appendix should apply. The worked examples were crucial to the agreement and explained how the pricing was to operate. 

The contract had been amended during the negotiation phase and the agreed changes had not always made their way through the whole document.  

The High Court dismissed the request to insert an implied term of an order of precedence. The worked examples gave more detail to the formula and there was no conflict between the two parts.

What Should You Do?

This case shows the usefulness of worked examples where there are complex formulae in commercial agreements. It is important, though, to make sure that all of the document is aligned so there is no dispute as happened here, which has cost the parties valuable time, money and a working relationship.

Coronavirus Legal Advice

If you would like help with drafting commercial contracts to protect you against risks from something going wrong, please contact Paul Gershlick in our Commercial team on 07795 570 072, or complete the form below.

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